'Red flag': ASIC puts poor-performing super funds on notice

Australian Securities and Investments Commission chairman James Shipton has warned poor performing super funds to lift their game, saying the regulator will view persistently low returns as a "red flag" that may indicate misconduct.

In a speech on Wednesday, Mr Shipton said the superannuation sector would be a key focus for the watchdog after the Hayne royal commission. Fund underperformance, poor quality financial advice, and the erosion of retirement savings due to life insurance premiums would come under close scrutiny, he warned.

The comments came as the watchdog released its strategic priorities for the year, which also include following up referrals from the royal commission, and further action in the courts.

Mr Shipton said ASIC was "determined" to make the superannuation system more effective for the 16 million Australians using it to save for their retirement.

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"Consumers expect super trustees to act in their best interests to improve retirement incomes," Mr Shipton said at a Financial Services Council conference in Sydney. "Consistent underperformers are clearly not doing enough.

"While underperformance is not illegal, it is frequently caused by conduct that does breach the law e.g. conflicts of interest, failure to act in members’ best interests, or lack of diligence by trustees. ASIC will consider persistent underperformance as a key indicator and red flag to help target our work to identify misconduct."

Also speaking at the conference, the shadow minister for financial services, Stephen Jones, said there was a need to make sure underperforming super funds delivered better outcomes, such as by cutting fees. Funds that did not improve should exit the market, he said.

"We can give no comfort to sleepy funds who are complacent about below-par performance," Mr Jones said.

Mr Jones signalled he was cautious about the royal commission's recommendation that members be defaulted into a super fund for life. "We don't want a system that locks Australians into bad funds. The consequences can be devastating," he said.

Another key concern of ASIC is unnecessary life insurance bought through super, an area the government has tried to tackle through a package of changes known as Protecting Your Super.

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However, Mr Shipton said there was "more to be done," and the watchdog would expect new "norms of behaviour" from trustees in how they communicated with members about insurance in super and dealt with claims.

It will also look at "in appropriate or excessive" fees being paid out of super funds for financial advice, with funds to review their governance arrangements for fees charged from super accounts.

The role played by super trustees, who have a duty to act in members' best interests, was interrogated by the royal commission. The powerful inquiry was particularly damning of some for-profit retail funds. Asked about the quality of trustees in Australia, Mr Shipton said there was "room for improvement."